We’ll find out soon
We have been skeptical that China could escape the slowdown in the West, whether from developing country trade or infrastructure spending. We’ll find out soon what will happen. WSJ
There are already signs of an economic slowdown in China, even amid predictions that the country will clock a growth rate of around 10% this year, compared with 11.9% in 2007. China’s imports of many base metals slumped in August from July, and growth in freight tonnage leaving China has slowed. U.S. imports from China are still strong, at $1 billion a day in July, but freight traffic in and out of America’s West Coast ports was down about 10% in July from the same month last year.
Government data, meanwhile, indicate a decline in Chinese home prices in August. A Morgan Stanley strategist recently warned of a possible “meltdown” ahead in China’s property industry.
In the worst-case scenario, China’s economy would slow dramatically or slide into recession over the next year…most economists believe that is unlikely, which means China looks set to remain the main driver for growth in commodities markets. Even with the U.S. and Europe in the doldrums, China’s economy is expected to expand 9% or slightly more next year. Travel by air and road continues to expand. Oil imports in August jumped 11% from August 2007, according to Barclay’s Capital.
“We believe underlying demand is still solid” in China, despite the latest headwinds, oil-industry analysts at Citigroup wrote in a note to clients last week. The bank said it expects Chinese oil demand to continue growing 4.5% to 5.5% a year over the next two years.
Even if China’s exports slump, the country could use its huge foreign-currency reserves to fund new public-works projects, from roads and dams to housing complexes and power plants — all of which would buoy raw-material demand. Government spending on infrastructure rose 42% in the first half compared with 19% in the same period in 2007
The WSJ piece continues: “analysts still forecast China and the Mideast will help drive up global oil demand next year by as much as 800,000 barrels a day,” leading to oil prices remaining high. We think that is pretty unlikely, based on past history, and the uptrend in this cycle have been so prolonged and so astronomical versus previous cycles. (Oil closed under $94 today.) In any event, we’ll probably know soon which, if any, forecasters have been correct.